The idea of trading dividend stocks may seem like a contradiction in terms. After all the best trading profits come with volatile stocks and dividend stocks are commonly stable with slow and steady growth. What would be the point in trading dividend stocks? Think of a safe haven when the market corrects. What stocks go up when the rest of the market goes down? When the market corrects money flows out of risky stocks and into safe stocks. While the economy falls it is common to see consumer goods stocks and utilities go up in price. In that sense one point for trading dividend stocks would be that they are likely to see a bump up this year when the market catches up with itself and corrects.
When Cash Is King
Forex traders are accustomed to trading one currency for another currency. They simply trade in such a way as to end up in the more valuable currency. Stock traders can take the same approach. Normally we think of buying stocks with money but how about buying money with stocks? When the market is going down many simply cash out and hold on to green backs. Then, when the market has bottomed out, they convert their cash back into promising stocks. Trading dividend stocks can be seen in this light as well. These are stable stocks that will likely not fall much if any in value when the market corrects, so they are like holding cash (with cash dividends).
Promising Dividend Stocks for 2015
The Street looks at promising dividend stocks for 2015.
Think dividend stocks are boring? Think again, especially this year.
Decent stock performance has been hard to come by in 2015. And that’s why eschewing a source of total returns, like dividends, is such a bad idea. Year-to-date, dividend payouts have contributed more than 20% of the S&P 500’s returns. Move over to the big-stock centric Dow Jones Industrial Average, and dividends make up more than a third of the Dow’s returns this year.
The article is written primarily for investors but stock traders are welcome to read it. The point in trading dividend stocks is to make money. These stocks may be a good place to park your money instead of using the sell in May and go away approach. They also may be solid stocks that will actually go up in price when the market corrects. Read the article.
When the Market Is Too Expensive
Robert Schiller thinks that stocks are overvalued. He uses his CAPE ratio to compare stock prices and earnings today with other times. His ratio stands at 27 while the average over time is 16. The other times when the ratio was this high were 1929 and 2000. Nevertheless he believes that the rally may continue for a few years before ending so you should buy them anyway.
If you ask well-known economist Robert Shiller if stocks are overvalued, he’ll give you a simple one-word answer: Yes.
Stocks haven’t been this expensive since 2007, says the Yale professor and Nobel Prize winner in an interview with Goldman Sachs. The only other instances were in 1929 and 2000, right before market crashes.
He comes to this conclusion using a metric he created, called the CAPE ratio, which looks at cyclically adjusted stock prices as compared to historical earnings. Right now that measure stands at 27, above the historical average of about 16.
If you are going to keep buying and selling stocks while you wait for the market to correct you might consider trading dividend stocks for the reasons that we have mentioned.
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